Medicare Reference-Based Pricing

Many cost reduction strategies have been implemented and tested to address rising health care costs both locally and nationally. One model in particular – negotiating rates using Medicare payments as a reference – has proven effective in reducing health care spending. This analysis shows what commercial health insurance companies pay hospitals for inpatient and outpatient services as a percent of what Medicare pays for the same services, along with patient experience and an overall hospital quality rating. The data is also available by county and Division of Insurance (DOI) region across the state to help communities, employers, payers, providers, state agencies and others better understand local health care cost savings opportunities.

 
  • Colorado’s comparative outpatient service payments are significantly higher than the national average (267%) at over three times Medicare rates (312%).
  • Hospital prices vary widely across both rural and urban counties. In fact, the two lowest-paid hospitals (Aspen Valley, Wray Community Hospital) and two highest-paid (Colorado Plains Medical Center, St. Anthony Summit Medical Center) are located in rural counties.
  • From 2017 to 2018, inpatient and outpatient hospital payments in all but one (West) region of the nine DOI regions in Colorado decreased. Compared to hospitals nationally, however, only two DOI regions (Denver, Boulder) were paid less than the national average.
  • Of the 52 hospitals with both 2017 and 2018 data available, for inpatient and outpatient services combined, the majority had a reduction in commercial payments in 2018 (-10% on average. Only eleven hospitals received payments that were higher than in 2017 (6%+ on average).
  • This report is based on a RAND Corporation analysis of commercial health insurance payments submitted by health insurance payers to the Colorado All Payer Claims Database (CO APCD) from 2018 to 2020. In order to standardization the data methods across all states in the RAND study, not all claims from the CO APCD for all hospitals were included and some volumes may be lower than expected.
  • The commercial payments represent hospital-based claims for commercial payers for the majority of fully insured and small group covered lives in Colorado, and approximately 50% of self-insured covered lives (mostly non-ERISA based self-insured).
  • Percent Medicare payments reflect the percent above or below Medicare Fee-for-Service payments (equal to 100%) that were paid by commercial health insurance companies and patients (also known as total allowed amount).
  • A facility with 100% Medicare means that they were paid the same by commercial payers as what Medicare would have paid. A 500% result means that the facility was paid 5 times what Medicare would have paid. Similarly, a 75% result means that the facility was paid 75% of what Medicare would have paid for similar services.
  • A null value in either % Medicare or quality measures means there was not enough data available to produce a result.

The Division of Insurance Region comparison includes all facilities in the region where the facility is located, including the facility itself, and the county comparison includes all facilities in the county where the facility is located, including the facility itself.

Use Cases

Employers
  • Use the data to see how your prices compare and to negotiate rates based on what Medicare would pay for services. Peak Health Alliance uses Medicare reference-based price data with hospitals and has achieved lower premiums as a result.
Hospitals and Providers
  • Use this information to understand how your payments compare to Medicare and to your peers, and to find low cost, high quality referral options.
Payers
  • Use this information to understand payment and quality variation and identify ways to make health care more affordable and high value.
Policymakers
  • Use this information to understand payment and quality variation and identify ways to make health care more affordable and high value.
Reseachers
  • Study price variation between hospitals and facilities and study year over year changes.
 

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